Companies, business owners and employers purchase a variety of insurance products from insurance companies related to employees. Examples of these insurance products include business owners insurance (BOP), workers compensation insurance, short term disability insurance, long term disability insurance, property, auto and other insurance products. Premiums are calculated by the insurance company based on factors such as business type, business size, estimated numbers of employees, employee occupations, anticipated injuries, likelihood of fraud, salary ranges of employees, locations of employees, and other factors.
In assessing businesses, the industrial classification of an entity is an important factor in determining insurance risk. There are many standardized industrial classification systems, such as Standard Industrial Classification (SIC), North American Industrial Classification System (NAICS), Global Industry Classification System (GICS), Industrial Classification Benchmark (ICB), Thomson Reuters Business Classifications (TRBC), Statistical Classification of Economic Activities (NACE), Australian and New Zealand Standard Industrial Classifications (ANZSIC), and International Standard Industrial Classifications (ISIC). Many of these are multi-digit code systems, wherein each digit, reading from left to right, specifies an entity's sector more specifically. For example, in the four-digit ICB, the first digit indicates industry, the second digit plus the first digit specify a supersector, the first three digits indicates sector, and the full four digits specify a subsector.
Current methods for aligning entities with appropriate industries are error prone. In some cases, the operations of an entity are too varied to neatly fit into one or two industrial classifications, causing activities of the entity to be ignored when an insurance quote is being determined. In other cases, the industrial code assigned to an entity is too general for assigning an accurate risk factor. For large and established companies, a third party data vendor may supply an industrial classification, but for new or small companies, third party vendors may not have an industrial classification available. In these cases, the burden of classifying the industry falls onto the entity itself or the agent. Whether with deceptive or honest intentions, the assigned industrial classification the agent or entity assigns is often incorrect or inadequate. Insurance companies produce hundreds of thousands of insurance quotes per year, so it is impossible for insurance companies to closely examine the industrial classification of each entity they develop a quote for. Additionally, businesses and evolve and change so that the initial classification may not be accurate at some point in the future as business expand, contract or modify the products or services they provide.
For these reasons, an industrial classification assigned to an entity may not accurately represent the entity's operation, leading to economic consequences for the insurance company. For example, if a business initially started as a coffee shop then begins to serve food as a restaurant there will be additional risks and liabilities associated with the new business or change in business and therefore re-classification and re-rating of the business is needed.
Companies also purchase workers compensation insurance to help injured workers. Workers compensation insurance covers medical expenses injured employees as well as wages lost due to not being able to work. Workers' compensation insurance also provides benefits such as rehabilitation services and medical care to workers that are injured in the course of their employment. Short term and long term disability insurance provides similar benefits for workers in situations where workers compensation insurance is not applicable. When a worker is injured or otherwise disabled, the worker may receive care from a number of different service providers, such as doctors, hospitals, and providers of rehabilitative services. These benefits make fraudulent workers' compensation and disability claims an enticing target for fraud. Workers' compensation and disability insurance fraud may occur in simple to complex schemes that often require difficult and lengthy investigations. For example, an employee either inflates the extent of his/her injuries, or simply fabricates injuries that never existed altogether. Fraud costs insurance companies billions of dollars a year and is a very serious industry issue.
As with re-classification of businesses, it would be desirable to have a system for re-verifying and validating businesses and individuals in the area of commercial related insurance such as business owner insurance and workers compensation and disability.